CHAPTER 6

Power of Partnerships

There are many reasons companies choose to collaborate, from leveraging each other’s expertise to entering a new market or territory.

A partnership

Types of Partnerships

Strategic Alliance

Strategic alliances are on the rise. According to PwC, 48% of global CEO’s planned to pursue a strategic alliance in 2019. In a continually unstable economic climate, a strategic partnership can help drive corporate growth and help companies win. It is a collaborative agreement between two or more companies that come together for a mutually beneficial goal while remaining separate entities. Some alliances provide organizations with a new set of skills or capabilities, others seek the opportunity to cross sell products into a new customer base. They are an alternative to the organic option of building a new business from the ground up, or the organic option of making an acquisition. The strategic alliance is planned and executed by representatives of both companies.

Successful Strategic Alliances

Music and Transport: Spotify and Uber partnered to provide streaming services to Uber riders. Not every Spotify customer uses Uber, nor does every Uber rider have a Spotify account. By offering this service enabled each company to attract new customers from each other’s customer base.

Creativity and Tech: The Hewlett Packard and Disney alliance was born as a result of Disney purchasing audio equipment from Hewlett Packard during the creation of Fantasia. Fast forward to today, this successful alliance sees HP systems embedded at Disney attractions, such as Disney’s Mission: SPACE to enable a thrilling technologically advanced ride.

Coffee and Books: A book browsing experience is enhanced by the strategic alliance between Barnes & Noble and Starbucks. Grab a coffee while reviewing the latest bestselling books all in one place.

Airline Alliances: Both One World and Star Alliance are examples of a whole sector alliances. The codeshare agreement enables two or more airlines to publish and market the same flight under their own airline and flight number. This results in cost reductions from shared sales offices, operational facilities, and staff, which is passed onto the traveler through lower prices, greater flight choice, and access to a range of services such as airport lounges and a loyalty reward scheme.

Unsuccessful Strategic Alliances

The majority of alliances fail to achieve their objectives. According to Forbes, the termination rate for alliances is close to 80%. The need for trust, collaboration, and risk sharing makes an alliance a challenging option. Even an obvious pairing can fail.

Jewelry and Watches: On paper, this seemed an obvious collaboration with Tiffany & Co entering a license and distribution agreement with Swatch to manufacture Tiffany & Co brand watches. With delays in product development and a favored marketing position to Swatch customers, Tiffany & Co became a disgruntled partner and failed to market the watch resulting in an unprofitable venture. This 20 year agreement lasted only 3 years resulting in each party suing each other in 2014.

Toys and Petrol: In 2011, Lego formed a co-branded partnership with oil company Shell enabling shell-branded toys to be sold in gas stations. This partnership resulted in a public outcry. So where did it go wrong? The companies had misaligned core values. Lego is a children’s brand known for its social and environmental values. By partnering with Shell, a company associated with pollution, the Lego brand values were in question. Having built a trusted customer base, it is key that a company examines the relationships they have with other companies ensuring alignment; otherwise, they risk alienating customers. In 2014, Lego did not renew the contract.

Joint Venture

A joint venture is the next level in which two or more businesses sign a contractual agreement thereby creating a third, jointly owned company sharing in the profit and losses. Typically a new management team oversees the joint venture.

Successful Joint Ventures

Life Science and Drugmaker: Alphabet (Google’s parent company) and GlaxoSmithKline entered a joint venture under which the two companies planned to invest $715 million over seven years to research treating diseases with electrical signals. According to Bloomberg, GlaxoSmithKline has 55% of the joint venture and Google-parent Alphabet 45%.

Car Manufacturer and Ride Hailing Service: Volvo and Uber entered a 50:50 joint venture to produce self-driving cars with $300 million investment. Uber will purchase Volvos and install a driverless control system for the needs of its ride-hailing service.

Tea, Coffee and India: Tata Global Beverages and Starbucks created Tata Starbucks in 2012, a 50:50 joint venture to penetrate the India market. With Starbucks’ established retail brand experience combined with the world’s second largest producer of tea, Tata Global Beverages, 167 stores across India have opened to date.

Unsuccessful Joint Ventures

Car manufacturer enters China market: In 1996, Italian car manufacturer Fiat sought to enter the Chinese market through a 50:50 joint venture with Nanjing Auto. The vision was to combine foreign capital, technology, local operations, and government expertise. Over the next six years, only four models were built and sales were low at 25,000 cars annually. What went wrong? Nanjing Auto was the wrong partner. Known primarily for making trucks, the customer did not adopt this new line of cars. This joint venture ended in 2007. However, with a goal to enter the Chinese market, Fiat found a new partner Guangzhou Automobile Group Co (GAC) and reportedly sold 130,000 cars in China in 2013. Having the right partner with market experience, an extensive supply chain and government support made the difference to Fiat’s success in China.

Key Success Factors

The Mantra

“Let’s collaborate. We are stronger together.”

RICHARD BRANSON, VIRGIN GROUP

The only entrepreneur to build 12 billion dollar companies in 8 sectors

Underperforming at school with dyslexia, at age 16, Richard Branson looked for success in other avenues in life, and channeled his energy into discovering ways to make money. He climbed his way through the ranks from selling Christmas trees and budgerigars to eventually gaining success with a student magazine. The opportunity through this magazine allowed Richard to start undercutting other businesses by selling records cheaper than record shops, and this led him to launch his mail order record business. Following its success, at the age of 22, Richard started a record label, Virgin Records, signing up-and-coming budding artists who were on the rise. Twenty years later, Richard sold Virgin Records to EMI for a reported U.S.D $1 billion, in order to inject funds into his Virgin Atlantic Airways business, founded in 1984, which was coming under fierce competitive pressure from their strong rivals: British Airways.

If you are interested to read more about Richard’s fifty year entrepreneur journey with the Virgin Group, it has been well documented. Personally I am a fan of his first book, “Losing my Virginity,” which I read as a 19 year old inspiring me to head down the entrepreneur path and “Screw Business as Usual,” providing an alternative perspective through a different lens on doing business for good. For the purposes of this book, let’s focus on the superpower that I believe led to the rise of the multi-billion dollar Virgin Group.

The Virgin Group consists of over 500 companies, employs 71,000 people in 35 countries and generates U.S.D $20.75 billion annual revenue. Many of the businesses under the Virgin umbrella have succeeded by tapping into the Power of a Partnership. This business model sees Virgin bring the power of its brand name and management team to the table, while the company, typically a leader in its field, brings the infrastructure, people, resources, and knowledge with a shared equity stake.

A prime example of this is how Virgin entered a new sector, Finance, and became the No. 1 Challenger Bank valued at $2.1 billion in 25 years.

In 1994, Richard was keen to disrupt the traditional banking sector by creating a customer centric bank that “made everyone better off.” By entering a 50:50 joint venture between Virgin Group and Norwich Union, Virgin Direct launched offering a tax efficient savings product. The following years, as mortgages and credit cards were added to the product suite, the company changed the name to Virgin Money.

With an energizing vision to one day become a consumer bank, but first requiring a banking license, Virgin Money made a bid for a UK based bank, Northern Rock in 1997; which was unsuccessful. Undeterred by the failure, Richard said “We will become a bank either by acquisition or by getting our own banking license. You will see us become a consumer bank within the next couple of years.” True to form, Branson was able to bounce back from the failure with a refreshed attitude, and in 2012, Virgin Money acquired Northern Rock, a mortgage lender followed by the Virgin credit card assets managed by MBNA, which is now Bank of America.

In 2019, Clydesdale Bank and Yorkshire Bank (CBYB) bought Virgin Money for $2.1 billion. Interestingly, CBYB dropped its own branding in favor of the more popular global Virgin brand name, which it licenses from Virgin Enterprise. This clearly emphasizes the strength of the brand that Richard had worked hard to create with the use of a clever twenty five year strategy of partnerships and positioning, becoming what is now the 5th largest UK bank.

The Virgin Group has emulated this joint venture strategy multiple times to enter new sectors and territories globally.

Where are They Today?

Sir Richard Branson has a net worth, according to Forbes, of U.S.D $4.6 billion. In 1999, he was knighted by The Queen for his services to entrepreneurism. In 2004, Richard set up Virgin Unite, a philanthropic arm of the Virgin Group, uniting some of the world’s greatest leaders, entrepreneurs, voices, and communities to tackle the world’s most challenging problems and make a difference by giving back.

Throughout his lifetime, Branson has been searching for new and extreme challenges for him to attempt, and his passion for record breaking adventures continues to this day as he has accomplished many stunning feats, from the fastest Atlantic Ocean crossing to hot air balloon and kitesurfing endeavors. With over 41 million followers and becoming the author of eight books, Branson is heralded as the most social CEO, breaking online records as well. He is part of the billionaire “The Pledge” group and is passionate about space travel, describing Virgin Galactic, the world’s first commercial spaceline, as “the greatest adventure of all.”

Quote by Richard Branson

BERNIE ECCLESTONE, FORMULA 1

Racing Driver to Billionaire Ringmaster

Bernie Ecclestone’s first look into the world of motor sport was as a racing driver at 21 years old. However, his racing career was short lived, due to an incident where he was violently thrown from the car during a crash. Although he emerged unscathed, this near death experience led him to question whether the thrill of racing was really worth putting his life on the line. He duly retired from the sport. But his passion for racing couldn’t keep him away for long, and at 27 years old he was drawn back to be in control of the Connaught F1 team, managing their racing drivers, including Stuart Lewis-Evans. Sadly, in the following year, Lewis-Evans crashed and died. Devastated, Bernie walked away from the sport again, shocked by the cruel and brutal horrors of the sport that occurred whilst in chase of the fleeting moments of pure joy. Unfortunately, it was an era that experienced several motorsport deaths as they didn’t have the strict safety measures that are in place today.

After years away from Formula One, Bernie was again lured back by the exhilaration of the world of racing, and returned to manage another driver, Jochen Rindt, as well as taking a share in the Lotus Formula 2 team. In the 1970 season, Rindt was killed in a tragic accident during practice for the Italian Grand Prix at Monza. Yet again, a friend had died and he somberly walked away from the sport for the third time.

Bernie’s back and forth relationship with F1 continued as in 1971, at the age of 41, he returned and bought the Brabham F1 team for $120,000. Over the next seventeen years, the Brabham team went from strength to strength and Bernie sold the team for $5 million. Bernie had already displayed his shrewd business acumen over the two decades, but it was his ability to harness the power of partnerships that led to him rising to become the Formula One ringmaster, leading to his nickname: the “F1 Supremo.”

In the 1970s, the sport was in a shambolic state as there was a big division in the paddock. The teams were split into two camps, the ‘Garagistas’ consisting of the independent British teams and the “Grandees,” the manufacturing giants, Ferrari, Alfa Romeo and Renault. In 1974, the independent teams formed the Formula One Constructors Association (FOCA) to represent their interests against the governing body, the FIA (Federation Internationale de l’Automobile). A strategy of “we are stronger together.” At that time, there was an emergence of the commercialization of TV rights as the sport became popular with viewers. Bernie was instrumental in getting appearance money for all the fledgling teams and income from televising Formula One races. In 1978, Bernie became the head of FOCA.

As the global sport continued to grow in popularity with viewers, broadcasters competed to acquire the television rights. In 1987, at the age of 57, Bernie setup Formula One Management (FOM) to manage the Formula 1 rights. With a reputation as an independent team champion coupled with his sharp negotiation skills, Bernie was instrumental in securing the income deal, giving 47% to the teams, 30% to the governing body (FIA), and 23% to himself—Formula One Management.

Where are They Today?

Bernie Eccelstone, now in his nineties, rose from racing driver to ringmaster over a seventy year period. The game changer was when the motorsport strategic alliance was created. In 2019, the scintillating speeds and high octane nature of the sport was enjoyed by 1.9 billion viewers globally, making it one of the world’s most popular sports. In 2016, Liberty Media paid $4.4 billion for Formula One Management.

Bernie is a great example of it’s never too late to adopt a superpower. Many people retire at 59 years old, yet Bernie pioneering the commercialization of the sport, forging partnerships, and positioning the teams to succeed in an era when the sport was enticing to broadcasters and viewers globally has resulted in his personal net worth of $3.1 billion Richard Branson and Bernie Eccelestone are not only great examples of the power of a partnership but also that you do not have to keep 100% ownership in order to go from zero to hero.